Page 446 - F1 Integrated Workbook STUDENT 2018

Chaptter 25

Exxampple 3

An asset wass purchased two yearrs ago for $$100,000.

Thee directors chose to ddepreciate the asset using the reducing bbalance
method and sso used a rrate of 20%% per annuum.
Thee directors have decided that a fairer pressentation wwould be given if the
deppreciation mmethod waas changedd to the strraight line bbasis and w will
impplement thee new depreciation mmethod in tthe year ennded 30 Juune 20X1.

At tthis time thhe directorss estimatedd that the useful life wwas eight y years and
that the residuual value wwas $10,7000.
Callculate thee depreciaation charrge for thee year ended 30 Junne 20X1 in
resspect of thhis asset.
Sollution

Thee original ddepreciation was:
Yeaar 1 = Cost $100,0000 × 20% = $20,000

Yeaar 2 = CA $$80,000($100,000 – $20,000) ×× 20% = $16,000
Thee asset hass been deppreciated ffor 2 years when the change of f depreciation
method occurrs and therrefore CA wwould be:
Cosst $100,0000 – ($20,0000 + $16,0000) = $644,000

Thee CA at thee date of thhe change is the carrrying amouunt on the sstatement of
finaancial posittion for thee asset andd must therefore be uused to reccalculate thhe
neww depreciaation charge.

CA – residual valuue $6 64,000 – $$10,700
––––––––––––––––––––––––– = –––––––––––––––––– = $$6,663 pa
Remmaining usseful econoomic life 8

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